Takeover rumours hint at private equity group interest in GCap

Monday 31 October 2005 02.06 EST
First published on Monday 31 October 2005 02.06 EST

Bid speculation continues to circle GCap Media, owner of Classic FM and London's 95.8 Capital FM, as private equity groups run the rule over Britain's largest commercial radio group.

Industry sources said would-be bidders were valuing the business at a "substantial" premium over its current share price of 315p, which values GCap's equity at £520m. Bid speculation is focusing on private equity and venture capital groups. Tim Schoonmaker, former head of Emap's radio businesses, which include the Magic and Kiss stations, is believed to be advising a bidder from the financial community. Mr Schoonmaker could not be reached for comment yesterday.

Other parties in the frame include 3i, the venture capital group that launched a bid for SMG's Virgin Radio last year. Ashley MacKenzie, former head of the Wireless Group local radio stations and the son of the former Sun editor Kelvin MacKenzie, has also been linked with 3i's interest. Permira and Cinven are also reported to be looking at GCap, amid speculation that Malcolm Wall, the former chief operating officer of United Business Media, is advising Cinven.

The one trade bidder to feature in last week's speculation, the US media group Clear Channel, has ruled out making a bid as it prepares to break up its business. Roger Parry, chairman of Clear Channel's international business, has also denied speculation that he is involved in a separate approach for GCap, believed to value the group at about 400p a share.

GCap declined to comment yesterday. However, GCap executives and shareholders believe a takeover bid is less likely than it was in June, when shares in the group slipped to 256p, before recovering to their current level.

GCap insiders point to a radical cost-cutting programme announced in September - when the chief executive, Ralph Bernard, said he would take £25m out of the cost base - as a barrier to tabling an attractive offer. A pared-down group structure would leave a financial buyer with less room to make further cuts and enhance profits, insiders said.

GCap was formed in May by the £711m merger of GWR, owner of Classic FM, and Capital Radio, the group behind the Capital FM and Xfm stations.

The task of creating a new broadcaster with 56 analogue stations and more than 1,400 staff was made more difficult by an advertising downturn, which saw the group warn on revenue expectations on the day of its stock market debut. A second warning in June was followed two months later by the resignation of the chief executive, David Mansfield, who was replaced by Mr Bernard, formerly executive chairman of GCap.